SOCIAL WEALTH STANDARDS, MONEY, GROWTH AND WELFARE IN A WORLD OF UNCERTAINTY

Lynne EVANS (University of Durham )
Turalay KENC (Imperial College )

We use a rich general equilibrium framework to examine growth and welfare effects of real and nominal sources of volatility. We assume an'AK' production function and allow for money in the utility function. Furthermore, we allow agents to care about accumulating wealth as social status - the so-called spirit of capitalism. As a result, there are several channels of influence through which volatility takes effect in this model. We find that productivity shocks enhance both growth and welfare while nominal shocks damage both; and that the damage from nominal shocks may be rather greater than previously supposed. Higher degrees of capitalism augment both of these effects but more so for productivity shocks than for monetary shocks.